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Photo: Bloomberg
Photo: Bloomberg

A 29% non-govt GDP fall is behind abysmal growth

The collapse of GDP growth by 23.9% for the Apr to Jun period isn’t a surprise. The economy was under a strict lockdown for most of the time to contain the pandemic. Nevertheless, a little digging throws up interesting trends. Mint takes a look.

The collapse of gross domestic product (GDP) growth by 23.9% for the April to June period isn’t a surprise. The economy was under a strict lockdown for most of the time to contain the pandemic. Nevertheless, a little digging throws up interesting trends. Mint takes a look.

What does the GDP figure highlight?

One way to measure the GDP is to add private consumption expenditure, government consumption expenditure, investment and net exports (exports minus imports). In Q1FY21, private consumption expenditure contracted by 26.7% and investment by 47.1%. With physical mobility limited, discretionary spending took a back seat. The situation became worse as incomes fell. With migrant workers heading home, infrastructure projects were thrown out of gear, causing a huge contraction in investment. It should be noted that private consumption and investment are two major contributors to the GDP.

How did government expenditure fare?

In recent years, government expenditure has formed 8-13% of the overall economy (the GDP). From April to June, it reached at around 18.1% of the GDP, the highest in more than 19 years. The government expenditure during the quarter increased by 16.4% to 4.87 trillion. This additional expenditure essentially ensured lower contraction of the economy. If we leave the government expenditure out of the calculation, what we are left with is the non-government part of the economy, which is the major part of the economy. This contracted by a massive 29.3%, much more than the overall economy.

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Body blow

What was the trend in non-govt GDP so far?

The growth of the non-government part of the GDP had already been slowing over the last few quarters. The spread of the coronavirus pandemic and the resultant lockdowns, disrupting economic activity has only accentuated this problem. Government spending can help, but for the economy to recover, the non-government part needs to do well.

Can other trends be seen in the GDP print?

Exports shrank by 19.8% during the period, while imports collapsed by 40.4%. The collapse in imports was because of two reasons. One is that oil imports, by value, came down by 62.8%, because of a fall in oil prices. The total amount of oil imported also declined. With the lockdown on through the period, mobility was limited and this led to lower oil imports. Non-oil, non-gold and non-silver goods imports collapsed by as much as 44.1%, showing a huge collapse in the overall private consumer demand.

What does this mean in the overall picture?

Net exports are a negative entry in the overall GDP calculation, because imports are usually more than exports. However, because of the collapse in consumer demand, the net exports number during April to June was in the positive territory at 75,675 crore. This is the first time in 16 years that such a phenomenon has occurred. Ironically, it ended up boosting the overall GDP number.

Vivek Kaul is the author of Bad Money.

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